Greece and its creditors have finally come to an agreement, after the weekend’s fraught negotiations between the cash-strapped Mediterranean nation and the Eurozone spilled over into Monday. Italian PM Matteo Renzi said they came ‘a few centimetres away’ from a Grexit, before a deal was finally reached at the end of a marathon, 17-hour session.
As agreements go, it’s pretty one-sided. While paving the way for a third bailout, it is subject to Greece implementing invasive reforms that go far beyond Greek PM Tsipras’ proposals, or indeed anything in the previous memorandum that the Greeks rejected when they elected Syriza in the first place and then turned down a second time in a referendum.
Greece has conceded on (drum roll, please): tax hikes, pension and labour market reforms, the continuing involvement of the IMF, oversight by the ‘institutions’ on relevant Greek law and the formation of a €50bn (£31bn) fund of privatised assets.
This latter fund will be used to recapitalise the banks, pay off debts (big surprise) and institute ‘growth initiatives’, for all the good that will do in the face of the severe fiscal squeeze coming Greece’s way. Tsipras got only a symbolic concession, that the fund would be based in Athens not Luxembourg.
The road to growth will be ‘long, and, judging by the negotiations tonight, difficult,’ said victorious German chancellor Angela Merkel. No kidding.
If Tsipras’ strategy had been to take Europe to the brink of disaster, only to offer a Trojan horse package of reforms in order to achieve debt relief, it appears to have backfired somewhat. Merkel and German finance minister Wolfgang Schaeuble simply burnt the horse outside the city gates.
The key moment was Schaeuble’s suggestion over the weekend that Greece should temporarily leave the euro if an agreement wasn’t made. Tsipras may have grossly underestimated German stubbornness in the face of Grexit or pressure from the French and the IMF.
Of course, the upside for Greece – other than a €7bn bridge loan to help keep the economy (barely) alive and the prospect of a €82-86bn bailout over several years – could still be debt relief, but it shouldn't hold its breath.
The Eurozone leaders’ statement admitted there were serious questions about Greece’s debt sustainability, which they blamed on Syriza naturally, but made no concrete promises, other than to say that ‘nominal haircuts on the debt cannot be undertaken’.
Besides, any relief Greece will get is subject to its implementing the reforms to its creditors’ satisfaction. Even getting the bailout in the first place depends on the Greek parliament passing legislation by Wednesday. The Germans and their allies, it seems, do not trust the Greeks to carry out their side of the bargain. One wonders why...
All in all, this is not looking great for Tsipras. He will return home with reforms that are anathema to his own party and people but that are only the ‘minimum requirements’ for a bailout from the creditors. Unless there really is some substantial debt relief, it’s hard to see how he’d convince people he’s done anything other than ruin the country in a wild gamble to save it.
To make matters worse, there’s not even a guarantee that Grexit has been averted. The Greeks may not keep to their side of the bargain to Germany’s satisfaction, and even if they do there’s little prospect of the economic recovery it needs to actually escape its perennial crisis.
As things stand, Merkel has taught Tsipras (and any other Eurozone leader thinking of fighting austerity the hard way) a serious lesson about the dangers of gambling. The house (i.e. Germany) always wins.